Paulson & Co. moved into damage-control mode yesterday during a conference call with investors, days after telling them that its flagship fund was down 47% this year.

The leaders of the New York-based firm, including founder John Paulson, took time to explain what happened in September, when all of its funds lost double-digits, and what they plan to do about it.

"We made a mistake," Paulson admitted. He said the firm would cut leverage in its largest fund, Advantage Plus, the one suffering from the 47% loss, and reduce its bullish stock bets that have cost it so dearly this year. Leverage in the fund will be reduced to 1.15 times from 1.5 times, and stock market exposure to about 45% of assets from 80%.

Paulson executives also said that if all clients withdrew the maximum amount they could this year, its assets could drop by 25%. But Paulson said he would not shutter the funds or return money to outside investors, a move he could make, given that half of the firm's assets are held by him and its employees.

Of course, some of those employees could be among the redeemers: Bonuses from 2008 will fully vest this year, and Paulson has abandoned its four-year vesting system for bonuses, Reuters reports.

Investors have until the end of the month to file redemption requests from Advantage Plus and a less-levered version.

Paulson also took the time to issue a statement about the Occupy Wall Street protest, which yesterday went on a walking tour of the Upper East Side homes of New York's billionaires, including Paulson, to protest about the impending lapse of the state's surcharge on millionaires.

"Instead of vilifying our most successful businesses, we should be supporting them and encouraging them to remain in New York City and continue to grow," he wrote in a statement. "The top 1% of New Yorkers pay over 40% of all income taxes, providing huge benefits to everyone in our city and state. Paulson & Co. and its employees have paid hundreds of millions of dollars in New York City and New York State taxes in recent years and have created over 100 high-paying jobs in New York City since its formation."

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